PRESIDENT TRUMP on Thursday nominated Jerome H. Powell to chair the Federal Reserve. Second only to Supreme Court nominations, selecting who will lead the Fed may be the most important appointment a president makes. Though we would have preferred to see current Fed Chair Janet L. Yellen retained for a second term, Mr. Powell is a good choice — and by far the best non-Yellen option floated.
Mr. Powell is a lawyer, not an economist, but he served in the George H.W. Bush Treasury Department and has obtained extensive central-bank experience serving on the Fed's Board of Governors. His appointment signals that the Fed's recent approach probably will not change drastically. That is a good thing. The central bank has kept interest rates low for longer than many monetary-policy hawks would have preferred. Given the economy's slow recovery from the 2008 financial crisis and chronically low inflation, that turned out to be the right call. Now that economic growth is picking up and the labor market is improving, the Fed, over the concerns of many monetary-policy doves, has begun to raise rates slowly and unwind the massive balance sheet it built up during and after the Great Recession.
This moderate approach will be tested in the coming months and years. The central bank is trying to reverse its emergency monetary policies without unduly suppressing economic growth. It must keep a wary eye out for ballooning asset bubbles or accelerating inflation while encouraging wages to rise and workers to reenter the labor force.
The Fed also does much more than set interest rates; it is the leading regulator of the nation's financial sector, with powers enhanced since the crisis. Mr. Powell has had an upfront view of the Fed's expanding responsibilities, for a time supervising the Fed's bank regulation section, and he has spoken sensibly about balancing regulation and market freedom. This suggests he will not pursue an unduly aggressive deregulatory agenda, as so many Trump appointees have done elsewhere in the government.
Still, the credit for the Fed’s recent record of steadiness lies above all with Ms. Yellen, and the logical response would have been to reappoint her. Doing so would have honored an admirable tradition of presidents reappointing Fed chairs whoe terms carried over from previous administrations. This tradition underscored that the Federal Reserve is a nonpartisan, independent organization charged with making difficult economic choices based on facts and professional analysis.
Following her stint as Fed chair, Ms. Yellen can remain on the central bank's Board of Governors for as long as six more years. It would be understandable if she stepped away, but we hope she stays. The board has lost some powerful intellects recently, including that of veteran economist Stanley Fischer. The country would benefit from Ms. Yellen's continued service.
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